AustraliaAustralia

Legal ReferenceSubdivision 815-B of the Income Tax Assessment Act 1997 (ITAA 1997)

Legal ReferenceSection 815-135 of the ITAA 1997

Revisions made to Australia’s taxation laws in 2013, namely in the form of subdivision 815-B of the Income Tax Assessment Act 1997 (ITAA 1997), resulted in closer alignment of Australia’s legislation with the application of the arm’s length principle as described in the OECD guidelines. The legislation specifically provides that for the purposes of determining the effect the legislation has in relation to an entity, the arm’s length conditions should be identified so as best to achieve consistency with the version of the OECD Transfer Pricing Guidelines specified in the legislation. For years commencing on or after 1 July 2022, Australia’s transfer pricing legislation has been amended to specifically refer to the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, as approved by the Council of the Organisation for Economic Cooperation and Development and last amended on 20 January 2022 (TPG).

Legal ReferenceATO webpage IRP and IRPD

Australia’s transfer pricing legislation does not provide a definition of related parties. Australia’s transfer pricing legislation is applicable if an entity gets a tax benefit in Australia from non-arm’s length conditions, where those conditions satisfy a cross-border test, regardless of whether there is common voting control or ownership of capital or distribution rights. Arm’s length conditions are defined as those that might be expected to operate between independent entities dealing wholly independently with one another in comparable circumstances. However, a definition of international related parties is used for the purposes of the Australian local file of the Country-by-Country report. For the purposes of the Australian local file, international related parties are persons who are not dealing wholly independently with one another in their commercial or financial relations and whose dealings or relations can be subject to Subdivision 815-B of the ITAA 1997 or the associated enterprises article of a relevant double tax agreement.

Legal ReferenceSubdivision 815-B of the ITAA 1997

Australia’s legislation does not specify any particular method to be used in respect of transactions between related parties. Subsection 815-125(2) of the ITAA 1997 states that “in identifying the arm’s length conditions, use the method, or the combination of methods, that is the most appropriate and reliable, having regard to all relevant factors”. The paragraph notes that possible methods include the methods set out in the documents referenced in section 815-135 of the ITAA 1997, i.e. specifically referenced TPG (refer to question 2). Therefore, the possible methods include the methods set out in the specifically referenced TPG.

• CUP (not provided)
• Resale Price (not provided)
• Cost Plus (not provided)
• TNMM (not provided)
• Profit Split (not provided)
• Other (not provided)

Legal ReferenceSubdivision 815-B of the ITAA 1997

Australia seeks to adopt the method that is the most appropriate and reliable or best suited to the circumstances of each particular case. Subsection 815-125(2) of the ITAA 1997 states: “In identifying the arm's length conditions, use the method, or the combination of methods, that is the most appropriate and reliable, having regard to all relevant factors, including the following: a) the respective strengths and weaknesses of the possible methods in their application to the actual conditions; b) the circumstances, including the functions performed, assets used and risks borne by the entities; c) the availability of reliable information required to apply a particular method; d) the degree of comparability between the actual circumstances and the comparable circumstances, including the reliability of any adjustments to eliminate the effect of material differences between those circumstances.” As noted in Question 2, Australia’s legislation specifically provides that for the purposes of determining the effect the legislation has in relation to an entity, the arm’s length conditions should be identified so as best to achieve consistency with the specifically referenced TPG.

• Hierarchy of methods (not selected)
• Most appropriate method (selected)
• Other (if so, please explain) (not selected)

Australia’s legislation does not provide specific guidance on commodity transactions.

Legal ReferenceSubdivision 815-B of the ITAA 1997

Subsection 815-125(3) of ITAA 1997 states: “In identifying comparable circumstances for the purpose of this section, regard must be had to all relevant factors, including the following: (a) the functions performed, assets used and risks borne by the entities; (b) the characteristics of any property or services transferred; (c) the terms of any relevant contracts between the entities; (d) the economic circumstances; (e) the business strategies of the entities”. As noted in Question 2, Australia’s legislation specifically provides that for the purposes of determining the effect the legislation has in relation to an entity, the arm’s length conditions should be identified so as best to achieve consistency with the specifically referenced TPG.

All things being equal, the Australian Tax Office (ATO) prefers to use domestic comparables where the Australian entity is the tested party as these would generally provide closer comparability especially in terms of economic circumstances. However, this all depends on the particular facts and circumstances and the availability of reliable data.

The domestic transfer pricing framework does not explicitly permit or prohibit the use of secret comparables.

Legal ReferenceSubsection 815-125 (2) of the ITAA 1997

As noted in Question 2, Australia’s legislation specifically provides that for the purposes of determining the effect the legislation has in relation to an entity, the arm’s length conditions should be identified so as best to achieve consistency with the specifically referenced TPG.

Legal ReferenceSubsection 815-125 (4) of the ITAA 1997

The legislation provides in subsection 815-125(4) ITAA 1997 that where there are material differences between actual and comparable circumstances, it will be sufficient for the purposes of comparability if reasonably accurate adjustments can be made to eliminate the effect of the difference. As noted in Question 2, Australia’s legislation specifically provides that for the purposes of determining the effect the legislation has in relation to an entity, the arm’s length conditions should be identified so as best to achieve consistency with the specifically referenced TPG.

There is no specific guidance in Australia’s transfer pricing legislation in respect to the pricing of controlled transactions involving intangibles. However, as noted in Question 2, Australia’s legislation specifically provides that for the purposes of determining the effect the legislation has in relation to an entity, the arm’s length conditions should be identified so as best to achieve consistency with the specifically referenced TPG. As such, guidance contained in the TPG relating to the arm’s length conditions of intangible assets may be relevant.

Australia’s domestic legislation does not specifically provide for transfer pricing rules or special measures regarding pricing of controlled transactions involving intangibles.

Australia’s domestic legislation does not specifically provide for transfer pricing rules or special measures regarding hard-to-value intangibles. However, as noted in Question 2, Australia’s legislation specifically provides that for the purposes of determining the effect the legislation has in relation to an entity, the arm’s length conditions should be identified so as best to achieve consistency with the specifically referenced TPG. As such, guidance contained in the TPG relating to the arm’s length conditions of hard-to-value intangible may be relevant.

Australia’s domestic transfer pricing legislation does not include specific guidance on intra-group services transactions. However, as noted in Question 2, Australia’s legislation specifically provides that for the purposes of determining the effect the legislation has in relation to an entity, the arm’s length conditions should be identified so as best to achieve consistency with the specifically referenced TPG. As such, guidance contained in the TPG relating to the arm’s length conditions of services may be relevant.

Legal ReferencePractical Compliance Guideline PCG 2017/2

Australia’s transfer pricing rules are contained in legislation and the Commissioner of Taxation in Australia does not have the power to waive the operation of the underlying statutory test. However, the Commissioner may communicate how audit resources will be sensibly applied as a result of the ATO’s assessment of risk in relation to tax law compliance issues. Australia has a number of transfer pricing simplification measures that are subject to various thresholds. The simplification measures do not constitute literal ‘safe harbours’ to the extent that they do not waive the application of the underlying statutory test. Intra-group services is one of the seven available simplified transfer pricing record keeping options. Guidance material for taxpayers in respect of how the simplification administrative measures can be utilised is published by the Commissioner in a Practical Compliance Guideline (PCG).

Australia’s domestic legislation does not provide specific transfer pricing rules regarding intragroup services. However, as noted in Question 2, Australia’s legislation specifically provides that for the purposes of determining the effect the legislation has in relation to an entity, the arm’s length conditions should be identified so as best to achieve consistency with the specifically referenced TPG.

Legal ReferenceDivision 815 of the ITAA 1997; Practical Compliance Guideline PCG 2017/4

Australia’s domestic transfer pricing legislation does not provide specific guidance on financial transactions. However, as noted in Question 2, Australia’s legislation specifically provides that for the purposes of determining the effect the legislation has in relation to an entity, the arm’s length conditions should be identified so as best to achieve consistency with the specifically referenced TPG. We note that this version of the TPG introduced Chapter X. The ATO has published guidance material on how the Commissioner will sensibly prioritise the allocation of compliance resources based on the ATO’s assessment of risk in relation to tax law compliance issues. PCG 2017/4 provides guidance on how ATO resources will be prioritised in relation to transfer pricing of financial transactions.

Legal ReferenceDivisions 230, 820 and 974 of the ITAA 1997

In 2024, Australia passed legislation that updated and strengthened the existing thin capitalisation rules contained in Division 820 of the ITAA 1997 as part of an initiative to align more closely with the guidance in BEPS Action 4. The amendments introduced new thin capitalisation earnings-based tests for a certain class of entities, replacing the existing asset-based rules for those entities. The amendments also established a new arm’s length debt test, in the form of a third-party debt test. Furthermore, as part of these amendments and consistent with Chapter 9 of the OECD’s BEPS Action 4 Report, Australia adopted supplementary debt deduction creation rules that disallow debt deductions to the extent that they are incurred in relation to debt creation schemes that lack genuine commercial justification. Australia’s income tax rules (outside transfer pricing rules) contain a number of additional provisions that are relevant for the tax treatment of financial transactions (including financial transactions with no cross-border component) such as Division 230 and Division 974 of the ITAA 1997.

Australia’s domestic transfer pricing legislation does not provide specific guidance on cost contribution arrangements. However, as noted in Question 2, Australia’s legislation specifically provides that for the purposes of determining the effect the legislation has in relation to an entity, the arm’s length conditions should be identified so as best to achieve consistency with the specifically referenced TPG. As such, guidance contained in the TPG relating to the arm’s length conditions of cost contributions arrangements may be relevant.

Legal ReferenceSubsection 262A(1) of the Income Tax Assessment Act 1936 (ITAA 1936); Sections 284-250 and 284-255 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953); Subdivision 815-E of the ITAA 1997

Australia’s domestic law obliges every taxpayer that carries on a business to keep records that record and explain all transactions and other acts engaged in by the taxpayer that are relevant for tax purposes. This includes transactions and other acts subject to the self-assessment regime, including the transfer pricing rules. Under Subdivision 815-E of the ITAA 1997, country-by-country reporting entities are required to lodge the three statements recommended by the OECD Action 13 report; i.e. country-by-country report, master file and Australian local file. These lodgment obligations are limited to entities that are in scope of CbC reporting; i.e. entities that belong to groups with over AUD 1 billion in annual global income. Country-by-country reporting entities are required to disclose the level of transfer pricing documentation that has been prepared for international related-party transactions. Per Subdivision 284-E of Schedule 1 to the Tax Administration Act 1953 (TAA 1953), taxpayers that do not prepare transfer pricing documentation prior to lodging their income tax return are not able to demonstrate they took a reasonably arguable position that they did not obtain transfer pricing benefit as a result of non-arm’s length conditions for the purposes of any relevant penalties that may apply.

• Master file consistent with Annex I to Chapter V of the TPG (selected)
• Local file consistent with Annex II to Chapter V of the TPG (selected)
• Country-by-country report consistent with Annex III to Chapter V of the TPG (selected)
• Specific transfer pricing returns (separate or annexed to the tax return) (selected)

Legal ReferenceSubdivision 815-E of the ITAA 1997

Australia’s CbC reporting provisions are contained in Subdivision 815-E of the ITAA 1997. All CbC reporting statements, including the master file, the Australian local file, and the CbC report, must be lodged within 12 months after the end of the reporting period to which they relate. The statements need to be lodged electronically in an XML Schema format and in English. Australia is a signatory to the Multilateral Competent Authority Agreement enabling the exchange of CbC reports (excluding the master file and Australian local file) with tax authorities of other signatory jurisdictions. Additionally, taxpayers may on a voluntary basis prepare transfer pricing documentation to substantiate their compliance with the arm’s length principle (including details of comparables and transfer pricing policies) beyond the minimum statutory requirements.

Legal ReferenceDivision 286 of Schedule 1 to the TAA 1953

‘Significant Global Entities’ are subject to significant penalties for failing to meet lodgment obligations. As CbC reporting entities are significant global entities, failing to lodge the CbC report, master file or Australian local file by the relevant due date will attract significant penalties in Australia. See response to question 29 regarding legislative incentives in the form of penalty mitigation per Subdivision 284-E of Schedule 1 to the Taxation Administration Act 1953.

Legal ReferenceATO webpage CbC reporting guidance

CbC reporting entities are able to request an exemption with respect to the requirement to lodge a CbC report, master file and Australian local file. Exemptions are considered on a case-by-case basis. For example, an exemption may be granted with respect to the CbC report if the ATO concludes that there is no other jurisdiction that may be expecting to receive a CbC report from Australia in relation to an entity (Australia’s CbC reporting regime includes within its scope entities that do not have offshore operations). Also, an entity may be granted an exemption with respect to the Australian local file or master file in exceptional circumstances after a review of the facts and circumstances. An exemption from CbC reporting requirements does not alleviate the taxpayer’s obligation to keep transfer pricing documentation.

Legal ReferenceDivision 357 and Division 358 of Schedule 1 of the TAA 1953; ITAA 1997; PS LA 2015/4; Part IVC of the TAA 1953

Australia has an APA programme in place. For more information on the administration of the APA programme please refer to Practice Statement Law Administration PS LA 2015/4 Advanced Pricing Arrangements. Australia signed up to ICAP since the programme commencement and participated in a number of MNE reviews. For more information on Australia’s administration of MAPs, please refer to Australia’s MAP profile. Additionally, Australia has public guidance and assurance programmes, including the justified trust programme in place across certain taxpayer populations where assurance levels are assessed by the ATO and are provided to the taxpayer. Further, taxpayers may seek to object, review or appeal if dissatisfied with a taxation decision as defined in Part IVC of the TAA 1953. A “taxation decision” for these purposes includes an income tax assessment.

• Rulings (selected)
• Enhanced engagement or cooperative compliance programmes (selected)
• Advance Pricing Agreements (APA) (selected)
• Unilateral APAs (selected)
• Bilateral APAs (selected)
• Multilateral APAs (selected)
• International Compliance Assurance Programme (ICAP) (selected)
• Mutual Agreement Procedures (selected)
• Other (please specify) (selected)

Australia was part of the Inclusive Framework political commitment regarding the application of the optional simplified and streamlined approach by a covered jurisdiction available for implementation as of 1 January 2025. As of May 2025, rules have not yet been implemented regarding the application of the simplified and streamlined approach by a covered jurisdiction.

Legal ReferencePractical Compliance Guideline PCG 2017/2

Australia’s income tax system, including its transfer pricing rules, works on a self assessment basis. The Commissioner of Taxation in Australia does not have a general power to waive the operation of the underlying statutory test. However, the Commissioner’s ‘general power of administration’ can be applied to inform the Commissioner’s approach to compliance. Australia has a number of transfer pricing simplification measures that are subject to various thresholds. The simplification measures do not constitute literal ‘safe harbours’ to the extent that they do not waive the application of the underlying statutory test, but they do communicate how ATO resources will be sensibly prioritised as a result of the ATO’s assessment of risk in relation to tax law compliance issues. There are seven available simplified transfer pricing keeping options where various thresholds are met relating to: small taxpayers, distributors, low value adding intra-group services, low-level inbound loans, materiality, technical services, low-level outbound loans.

Australia’s statutory provisions only substitute arm’s length conditions for the actual conditions that operate between a taxpayer and another entity when the taxpayer obtains a transfer pricing benefit due to the difference between the actual conditions and the arm's length conditions. However, the Commissioner may amend an assessment to provide relief from double taxation where profits are adjusted by a treaty partner in accordance with a double taxation agreement.

Australia’s income tax system, including its transfer pricing rules, works on a self assessment basis. Australia’s statutory provisions require the substitution of arm’s length conditions for the actual conditions that operate between a taxpayer and another entity when the taxpayer obtains a transfer pricing benefit due to the difference between the actual conditions and the arm's length conditions. Therefore, there is a requirement that a taxpayer make an upward year-end adjustment if relevant in determining their taxable income. Australia’s statutory provisions do not permit a taxpayer to make a downward adjustment. However, as noted in Question 40, the Commissioner may amend an assessment to provide relief from double taxation where profits are adjusted by a treaty partner in accordance with a double taxation agreement.

Australia has reserved its right to use Article 7 as it read before 2010.

• Article 7 as it read before 2010. (selected)
• Article 7 as it reads after 2010. (not selected)
• Other (please provide additional details) (not selected)

Australia reserves its right to use the previous version of Article 7 (i.e. the version included in the Model Tax Convention immediately before the 2010 update of the Model Tax Convention).

Legal ReferenceSection 815-235 of the ITAA 1997

Subdivision 815-C of ITAA 1997 contains the domestic transfer pricing provisions in the context of permanent establishments. The Australian tax law does not recognise dealings between different parts of one entity. This means that only income from, and expenditure with, other entities can be allocated to PE. That is to say, notional transactions between the PE and the head office are not recognised as part of the attribution process.